Accounting Analysis



Accounting - Accounting Analysis

Question 1: We Know Everything

Requirement 1: Calculate the number of hits to the WKE website needed to Breakeven if WKE partners with NS?

Formula for calculating breakeven is as followed (Drury, 2012):

Breakeven: Fixed Cost / (Selling price - Variable Cost)

Breakeven WKE partners with NS: $ 6, 000 / (0.1 - 0.02)

Breakeven WKE partners with NS: 75,000 units

75,000 numbers of hits WKE needed in order to breakeven if WKE partnership with NS.

Requirement 2: Calculate the number of hits to the WKE website needed to Breakeven if WKE partners with AS?

Formula for calculating breakeven is as followed:

Breakeven: Fixed Cost / (Selling price - Variable Cost)

Breakeven WKE partners with AS: $ 4, 000 / (0.1 - 0.04)

Breakeven WKE partners with AS: 66,667 units

66,667 numbers of hits WKE needed in order to breakeven if WKE partnership with AS.

Requirement 3: Which ISP would you recommend that WKE use and why?

After calculating Breakeven point which refers to point where company would not be earning profit rather revenue received would be equals the costs incurred. Company would be generating revenue after exceeding this point. Considering this factor, WKE should go for AS since, WKE just need to produce 66,667 units in order to breakeven while for NS, WKE need to generate 75,000 units. After 75,000 units, WKE will be generating revenue. As compared to AS, after producing 66,667, WKE will be producing profits (Larry, Christopher, 2012).

Requirement 4: The monthly demand, in number of hits, for WKE is expected to be either 50,000 if the economy is sluggish or 150,000 if the economy is booming. Both of these possible economic conditions are equally possible. Which ISP Should WKE ho with and why.

The following are the table showing profit in both scenarios for both ISP providers. If WKE select Amazon Servers, in Sluggish situation they would be suffering a loss of 16,666.67 units while in Booming situation profit would be 83, 333 units . As far as Network solutions are concern, in Sluggish situation, WKE would be suffering a loss of 25, 000 units while in booming situation, WKE would be benefiting with 75,000 units.

If we compare both ISP providers, WKE will benefit more from Amazon servers rather than Network solution. The reason for this is the both loss in sluggish situation as well as profit in Booming situation (Motilal Banarsidass, 2012).

Amazon Servers

 

Demand

Breakeven

Units

Profit

Sluggish

50, 000

66, 667 (16, 666)

-$ 1, 666

Booming

150, 000

66, 667 83, 333

$ 8, 333

Network Solution

 

Demand

Breakeven

Profit

Profit

Sluggish

50, 000

75, 000 (25, 000)

-$ 2, 500

Booming

150, 000

75, 000 75, 000

$ 7, 500

Hence, WKE should go for Amazon Servers as company would be incurring lower loss in Sluggish scenario while higher profit in Booming scenario as compared to Network Solution.

Question 2: Jason Rock

For each of the five stone types, calculate the total cost of one ton or unwashed stones in inventory.

Type Of Stone

% of Daily Production

Tons per day

Allocated Joint Cost

Allocated Joint Cost/unwashed ton

#1

10%

50

$ 7,500

$ 150

#2

20%

100

$ 15,000

$ 150

#3

20%

100

$ 15,000

$ 150

#4

35%

175

$ 26,250

$ ...